A lottery pays 100,000 at the end of the first year, increasing by 10,000 each year...
A lottery pays 100,000 at the end of the first year, increasing by 10,000 each year for 30 years total. Alternately, you can take a lump sum of 2,500,000 now. If you can earn 8% interest on savings, which is the better pay-out?
Homework Answers
Present value of lottery in case 1 = 100000(P/A, 8%, 30) + 10000(P/G, 8%, 30)
= 100000*11.2578 + 10000*103.4558
= 2,160,338
Present value of lottery in case 2 = 2,500,000
The better payout is available in case 2 so take a lump sum money of 2,500,000.
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